Failed Crypto Coins: Causes and Consequences

Failed crypto coins have been making headlines in recent years, leaving investors with significant losses. Many of these coins were launched with promises of high returns, but their underlying flaws led to their downfall.

Lack of a clear use case was a major reason for the failure of many crypto coins. For example, the article highlights the case of NEM, which was touted as a platform for fast and secure transactions, but ultimately failed to gain traction.

Inadequate security measures were another common issue. The article notes that the cryptocurrency Ethereum Classic was hacked in 2017, resulting in a loss of over $1 million worth of cryptocurrency. This incident led to a significant decline in the coin's value.

Investors were often blinded by the promise of high returns, failing to conduct proper due diligence on the coins they invested in.

The collapse of TerraUSD and FTX was the catalyst for a string of crypto bankruptcies in 2022. Many crypto exchanges and lenders are interconnected, with each company's liquidity depending on investments and loans in other companies.

FTX's collapse was particularly devastating, as it allegedly lent customer funds to Alameda Research for risky bets, then faced a mass customer withdrawal of around $6 billion in about 72 hours.

This liquidity crisis had a ripple effect, leading to the collapse of Genesis Global, which had funds tied up in FTX and Three Arrows. Genesis lost these funds in the bankruptcies, adding to its own financial woes.

The collapse of TerraUSD and its cryptocurrency, Luna, also had far-reaching consequences, causing Celsius, Three Arrows, and Voyager to file for bankruptcy.

The collapse of TerraUSD and FTX was a major catalyst for crypto bankruptcies in 2022. This event sent shockwaves through the industry, causing a ripple effect that led to the downfall of several other companies.

Many crypto exchanges and lenders are interconnected, making them vulnerable to the collapse of other companies. This interconnectedness can be a double-edged sword, providing opportunities for growth but also increasing the risk of catastrophic failure.

FTX's collapse was particularly devastating, with the company allegedly lending customer funds to Alameda Research for risky bets. This reckless behavior ultimately led to the company's downfall.

The speed at which FTX collapsed was astonishing, with a mass customer withdrawal of around $6 billion in just 72 hours. This rapid loss of liquidity was a major contributor to the company's bankruptcy.

Genesis Global's collapse was also linked to the downfall of FTX and Three Arrows, as the company had some of its funds tied up in these companies. This highlights the importance of due diligence and risk management in the crypto industry.

BlockFi's bankruptcy was triggered by FTX's collapse, which meant the company could no longer loan money to the struggling firm. This demonstrates the interconnectedness of the industry and the need for companies to have contingency plans in place.

The collapse of TerraUSD and Luna also had a significant impact on the industry, leading to the bankruptcy of Celsius, Three Arrows, and Voyager.

The 2022 crypto bankruptcies had a devastating impact on investors, with many losing access to their life savings. For some, this was the first time they'd ever invested in cryptocurrency, and the sudden loss was a huge blow.

The collapse of FTX and TerraUSD caused a ripple effect, leading to the downfall of several other crypto lenders, including Voyager Digital, Celsius Network, and Three Arrows Capital.

Investors who were unable to withdraw their funds were left in limbo, with no clear way to get their money back. This led to a surge in crypto bankruptcy lawsuits, as investors sought to reclaim their losses.

The 2022 crypto market downturn was staggering, with a loss of over $2 trillion. By December 2022, popular cryptocurrencies like Dogecoin, Bitcoin, and Terra had lost anywhere from 55% to 100% of their value.

Investors who lost money in crypto bankruptcies faced another challenge in the 2023 tax season, as they struggled to claim their losses due to frozen assets. The IRS eliminated the option for taxpayers to claim losses under tax code Section 165 if they'd experienced a steep decline in value.

Filing a claim with each bankruptcy court as a creditor can be a complicated process, but some investors have opted to file crypto bankruptcy lawsuits to get their money back.

If a cryptocurrency dies, it simply ceases to function as a token or blockchain network. There are countless examples of memecoins and NFT projects that have been abandoned or dropped in value to essentially nothing.

Having a position in a dying cryptocurrency can mean significant losses, so it's essential to be aware of the risks. If you had no position in a cryptocurrency that dies, it will have no effect on your portfolio.

It may take some time for a cryptocurrency to actually die once it loses its luster as an investment asset. Over 2,500 cryptocurrencies have died since 2013, and that number is only going to rise.

Rising interest rates can lead to higher borrowing costs, making it more expensive for individuals and businesses to take out loans.

This, in turn, can slow down economic growth, as people and companies may be less likely to invest and spend.

Higher interest rates can also cause the value of existing bonds to decrease, leading to losses for investors.

For example, if you bought a bond with a 5% interest rate and the interest rate rises to 6%, the value of your bond will decrease.

As a result, investors may become more cautious and pull their money out of the market, further reducing economic growth.

The Federal Reserve, which sets interest rates in the US, has been increasing rates in recent years to combat inflation.

However, this can have a ripple effect on the entire economy, making it more challenging for people and businesses to access credit.

In 2022, the crypto market experienced a "crypto winter" due to a string of bankruptcies that froze many investors' assets. The market lost more than $2 trillion.

One of the key events that triggered this downturn was the trouble at Terraform Labs and its cryptocurrency, TerraUSD, in May 2022. This caused the downfall of several other crypto lenders.

The FTX crypto exchange and its affiliated hedge fund, Alameda Research, filed for bankruptcy in December 2022, culminating the year of crypto downfalls.

The Acala USD stablecoin suffered a severe crash in August 2022 when a hacker exploited a bug in the iBTC/aUSD liquidity pool, resulting in 1.2 billion aUSD being minted without collateral.

Genesis Global Capital filed for bankruptcy in January 2023, marking a significant blow to the crypto industry.

The firm, owned by Digital Currency Group, had a massive liability range of $1 billion to $10 billion.

Genesis froze customer redemptions just before its bankruptcy filing, leaving many creditors in a difficult situation.

The company estimated it had over 100,000 creditors, a staggering number that highlights the scale of the disaster.

FTX's collapse in November 2022 marked a significant turning point in the crypto market, with over a million depositors losing their money.

The exchange's founder, Sam Bankman-Fried, faced allegations that he funneled customer deposits to FTX's affiliated trading firm Alameda Research, which experienced $6 billion in withdrawals in just 72 hours.

FTX's bankruptcy filing was the first major crypto exchange to do so, and it's estimated that more than a million depositors lost their money as a result.

The U.S. Securities and Exchange Commission filed a lawsuit against Sam Bankman-Fried, and he also faces criminal charges for fraud and conspiracy.

He pleaded not guilty, but the damage had already been done, with FTX's collapse contributing to a "crypto winter" that saw the market lose more than $2 trillion in 2022.

FTX's collapse was a massive failure of oversight of risk management, according to Bankman-Fried, who apologized for the company's actions.

However, the incident also highlighted the importance of regulatory oversight in the crypto market, as many investors were left unable to withdraw their money from FTX.

In the aftermath of the collapse, investors who were barred from withdrawing funds in bankrupt crypto companies have filed cryptocurrency bankruptcy lawsuits to get their money back.

BlockFi, a crypto lender, was the first to follow FTX into bankruptcy, two weeks later, after it struggled to stay afloat due to market turmoil and its reliance on a $400 million FTX credit facility.

The incident serves as a cautionary tale for investors in the crypto market, highlighting the risks of investing in unregulated companies and the importance of due diligence.

Voyager Digital and Three Arrows Capital were two prominent companies that filed for bankruptcy in 2022.

Voyager Digital had over 100,000 creditors and estimated its assets and liabilities at between $1 billion and $10 billion.

The company's struggles began when it loaned $650 million to Three Arrows Capital, which failed to meet margin calls from several lenders.

Voyager's stock plummeted more than 60% in June 2022 after revealing the potential loss.

Three Arrows Capital received a $350 million loan from Voyager and 15,250 bitcoin.

The hedge fund failed to meet margin calls from several lenders earlier in June 2022.

Voyager suspended withdrawals, deposits, and trading activity on July 1, 2022.

The collapse of TerraUSD and Luna led to liquidity problems for both companies.

The crisis at Three Arrows Capital shed light on the extent of the crisis in the crypto market.

The market lost more than $2 trillion in 2022, with bankruptcies freezing many investors' assets.

The turmoil in the market started with trouble at Terraform Labs and its cryptocurrency, TerraUSD, in May 2022.

The downfall of Terraform Labs caused the downfall of several other crypto lenders, including Voyager Digital and Celsius Network.

Gemini Trust is another player involved in cryptocurrency bankruptcy lawsuits.

Gemini Trust hasn't filed for bankruptcy, but its lending program Gemini Earn has been severely impacted, with around 340,000 investors losing hundreds of millions of dollars due to Genesis Global's bankruptcy.

The company has laid off a substantial amount of its workforce and suspended withdrawals from Gemini Earn.

Gemini Trust and its founders, the Winklevoss twins, face class-action lawsuits from investors seeking their money back.

Investors who filed Gemini lawsuits accused Gemini Trust of selling unsecured securities.

BitConnect Coin (BCC) was a cryptocurrency that rose to an all-time high of US$463 in December 2017, starting at $0.17 after its initial coin offering.

It was based on high yields, but these yields were actually due to it being a Ponzi scheme. The UK government gave the company two months to prove legitimacy.

The Texas State Securities Board issued a cease and desist to the company in January 2018, calling it a Ponzi scheme and citing a lack of transparency.

BitConnect shut down two weeks later, causing the price to plummet to zero shortly after.

The DAO was a pioneering Decentralized Autonomous Organization that launched in 2016, but its ambitious project was short-lived due to a critical flaw in its code.

In an effort to crowdfund new projects, users could deposit ETH into The DAO, but an issue with the code led to a devastating hack that drained the platform of $60 million worth of Ether.

The hack would ultimately account for around 5% of all Ethereum tokens in existence at the time, leaving a lasting impact on the crypto community.

The DAO's demise led to the creation of two separate blockchain forks: Ethereum Classic (ETC), where the funds are still missing, and Ethereum (ETH), where the hack never occurred.

The DAO's failure marked a significant turning point in the development of Initial Coin Offerings (ICOs), which were seen in the following years and still occur today.

Terra Luna's 2022 Winter Crash was a pivotal moment in the crypto market. The protocol's dual token mechanism proved to be its downfall, with users creating new UST tokens by burning LUNA coins, causing a surge in LUNA supply and a subsequent collapse in its value.

Terra's ecosystem was worth over $40 billion at its peak, but the network's instability led to a series of whale-sized selloffs that tested UST's peg, raising concerns before a brief recovery. Two days later, UST lost its peg again, triggering a full-fledged bank run.

By May 12, 2022, UST was trading at $0.36, while LUNA was trading at fractions of a cent. The collapse of Terra wiped out the market, and the damage didn't stop there. The protocol's demise triggered a severe liquidity crisis that impacted significant players such as Celsius, Three Arrows Capital, Genesis Trading, and Alameda Research.

The LUNA price fell 96% in the past 24 hours alone, pushing it to less than 10 cents, down from about $60 earlier that week and a record $120 in mid-April. A change in market dynamics caused LUNA prices to snap at a breakneck pace, plummeting through several support levels as terraUSD (UST) lost its peg.

Beanstalk (2021-2022) was a notable failure in the world of DeFi. The credit-based stablecoin protocol lost all of its $182 million in collateral due to a security breach.

The security breach was caused by two sinister governance proposals, BIP-18 and BIP-19, which were issued on Saturday by the exploiter. The proposals asked for the protocol to donate funds to Ukraine, but had a malicious rider attached to them.

A flash loan attack was also involved in the security breach, which ultimately created a sinkhole of funds from the protocol. Smart contract auditor BlockSec analyzed the situation and found the malicious proposals to be the root cause of the problem.

The exploiter successfully extracted all of the protocol's collateral, leaving Beanstalk Farms with significant financial losses. This incident highlights the importance of secure governance proposals and the need for vigilant monitoring of DeFi protocols.

Basis Cash, a stablecoin startup, shut down in 2018 due to an unfavorable regulatory landscape. The company had secured $133 million in funding to build an algorithmic stablecoin.

Its founder, Nader Al-Naji, had described the project as maintaining price stability for its token in a way similar to the US Federal Reserve's management of the dollar.

Basis Cash returned all its remaining funds to investors. The startup's move was first reported by The Block, a crypto news site.

The company had originally been called Basecoin before rebranding to Basis Cash.

The Tiger Token rug was a significant event in the world of cryptocurrency. It drew approximately $4.518 million in assets.

The TIGER token dropped by more than 50% after tokens began to be sold over several days. This massive decline was a result of the project rug.

The project rug saw 64,171 TIGER tokens sold across three accounts. This is a staggering amount of tokens sold in a short period.

The TIGER traffic platform is a public chain DAO mechanism developed in the form of donations. Its goal is to support the global technical team by the international DAO organization.

The platform aims to protect wild animals and the ecological environment.

The crypto market has seen its fair share of wild swings over the years. One notable failure is the collapse of Mt. Gox, which was once the largest bitcoin exchange in the world, but it lost hundreds of thousands of customer funds due to a hack.

In 2014, Mt. Gox filed for bankruptcy, marking the beginning of the end for the exchange. The company's collapse was a major blow to the crypto community.

The Silk Road, a notorious online black market, was shut down in 2013 by the FBI, marking a significant failure for the dark web's most infamous marketplace. The Silk Road's closure was a major victory for law enforcement.

The DAO, a decentralized autonomous organization, was hacked in 2016, resulting in the loss of millions of dollars' worth of ether. The DAO's failure was a major setback for the development of decentralized governance.

The collapse of Mt. Gox and the DAO's hack serve as a reminder of the risks involved in investing in cryptocurrency. These failures highlight the importance of security and regulation in the crypto space.